In an interview on CNBC, Clayton said that if bitcoin were to be considered as a replacement for fiat currencies, “that type of currency is not a security”.

Securities

With its regulatory mandate covering financial securities and the exchanges that trade them, it must define carefully what constitutes a security.

Clayton emphasised: “In return for me giving you my money, you say, ‘You know what, I’m going to give you a return.’ That is a security, and we regulate that. We regulate the offering of that security, and we regulate the trading of that security.”

While bitcoin, in this context, is not regarded as a security, the raising of capital through initial coin offerings (ICOs) is.

Clarity provided

“The SEC is right to insist that the digital coins, such as bitcoin, which are replacement for sovereign currencies, such as the dollar, sterling, yen and euro, are not securities,” said Nigel Green, founder and chief executive of deVere Group.

He added: “This clarification by the SEC removes some of the uncertainty that has been swirling around the crypto sector and serves to strengthen the overall proposition of many of the major cryptocurrencies.”

Ripple in class action lawsuit: Pic by Shutterstock

Ripple class action

The distinction by Clayton could have a major impact on the class action suit against Ripple Labs filed in May by law firm Taylor-Copeland on behalf of Ryan Coffey, a private investor who bought 650 ripple tokens on 5 January and sold them 13 days later, sustaining a 32% loss.

Coffey claims Ripple violated the Securities Act by selling unregistered securities and Ripple has countered that it is not a security under US law.

Regulation

The debate in the US over which regulatory body should oversee the cryptocurrency rages and, as yet, the sector remains largely unregulated.

“Governments, central banks, and regulators around the world are all now recognising the scale and potential of Bitcoin and other cryptocurrencies. As such, they’re searching for regulatory frameworks given that the phenomenon has become so large,” said Green at deVere.

Post written by Chris Wheal

Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.